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Friday, April 21, 2017

Globalization and the End of the Labor Aristocracy, Part 2 [feedly]

I fear this article, and ones not unlike it, will thrill parts of the left, but you only have to read the first paragraph to know that this is going to end in a circular firing squad with the writer as victim.

Example:

Yes, the past decades have witnessed an explosion of trade and trade-related agreements, doing and codifying, just as Karl Marx predicted, the invasion of capitalist and market relations into every nook and cranny of life, throughout the world, with no regard or veneration whatsoever for any tradition that stands in the way of commerce. Does the writer prefer a return to the era of direct and indirect military intervention, and puppet dictator--torturers, and direct colonial rule, to the "trade agreement" regimes? I doubt it. He ends up finding some real cheer in the unmediated evil of globalization, however. Following a shadow of the old Trotskyist "the worse the better" ultra leftist tendency, he sees virtue in globalization's destruction of something he scorns even more than globalization: the "labor aristocracy" -- in a word, the "patriotic" leadership of the trade unions in trade disputes and imperial wars, but also, derivatively, the "middle class" aspirations of the American working class. That's how it becomes a circular firing squad.

Countries -- and lenders -- who made "bad loans" need to negotiate those debts. How will loans ever be repaid without regulated trade? How else will the infrastructure and labor force investments/preparation necessary to obtain the gains from trade be accomplished, without the loans? They can't do without the loans because they have no native capital to sustain ANY independence. Further, the loans, especially if they are privately sourced, which most are, cannot be simply "erased". Public institutions can forgive debt as long as their currency is strong. Private, or predominantly private, institutions have much less ability. Note the inability of the EU finance ministers to negotiate down the Greek debt, without risking failure of the lending institutions. Ultimately, the only global solution is for rich countries to pay the poor countries to reinvest and become richer themselves. The same is true for the diverse effects from globalization INSIDE a country. The winners in trade pay the losers to retrain and become winners in the rising rather than receding economic sectors. Unemployment insurance for West Virginians is paid by economic powerhouse California. We are a long way from the global regime necessary to, in effect, introduce elements of a global social democracy. But the trade agreements are an emergent process that must end in the strategic embrace -- of all who do the work of the world.

Globalization -- indeed all trade and all development under capitalism -- creates constant change and turbulence in markets, and winners and losers, at all levels. Yet trade is also a vast source of potential growth. Without growth, without rapid wealth creation, the ravages of inequality cannot be overcome, or even survived. Absent growth civil and international wars are all but certain. And the outcomes of wars are never certain. The authors below suggest that had "periphery" nations "been allowed" to "go their own way" at the dawn of the imperial age, there could be some escape from.....what?.....global capitalism?

I believe the answer, as economists like Jared Bernstein, Dani Rodrik, and others have been writing, lies in a "strategic embrace" of globalization -- and in cultural and economic internationalism -- instead of the "Just Say No" stance of many left and labor organizations. Trumps victory and ascendancy is a classic example of the Fascist opening that protectionism on trade affords. A strategic embrace recognizes the fundamental forces and benefits of trade, but takes into account the powerful importance of flexible institutional and social support to sustain development especially in emerging economies. In a word, different economies NEED different degrees and kinds of socialism -- public investment and regulation and taxation -- even to position themselves to effectively participate in a global market economy and global trade.

Many "fair trade" proposals in progressive writing focus on putting labor, environmental, and other institutional "rules" into agreements to restrain the huge, and sometimes unexpected, impacts of a sharp shift in trade incentives and scale effects. The problem is there is little or no way -- certainly no equitable way --to adjudicate grievances under such rules. However, Congress and the President, and the Courts may not have to power to impose a cure for Colombian para-military murders of labor leaders But they DO have the power to insure that gains from trade are distributed equitably in THIS country. This can be accomplished in any number of ways including transaction taxation, capital gains taxation, expanded public investment, and the expansion, instead of restriction, of collective bargaining rights across all occupations -- a la Denmark.

Calling the agreements purely corporate is a misleading dodge. Every trade agreement is signed by a government, even if 90 % of all activity governed by it is conducted by businesses, both buyers and sellers, producers and consumers. As agreements spread, whether they are good or bad, whether they generate any real trade, or not, whether they create more harm than benefit, so does international law emerge. These agreements, get voted on, as opposed to other, less formal bargains. The trade deals may be dirty in many respects. But they are cleaner and more transparent than the cold-war "agreements". A new consensus on trade is clearly needed. the Current regimes are aggravating global inequality in dangerous ways. the rise of Fascist movements and their fake populist fronts is a sign that the gains from trade are NOT being shared equitably, nor are the side effects being addressed.

This is Part 2 of a four-part article by Jayati Ghosh, published in the March/April 2017 special "Costs of Empire" issue of Dollars & Sense magazine. Part 1 is available here. Subsequent parts will appear on Triple Crisis over the next two weeks. In this section, Prof. Ghosh focuses on the new international economic architecture for trade, investment, and property rights.

The past two decades have witnessed an explosion in the treaties, agreements, and other mechanisms whereby global capital imposes it rules upon governments and their citizenries. Unlike the conditions imposed on developing countries by the IMF and the World Bank, these rules apply even to countries that are not debtor-supplicants to international financial institutions. They require all countries to restrict their policies, though these restrictions are especially damaging to the prospects of autonomous economic development in the "periphery" of the world capitalist economy.

The Multilateral Trading System

In terms of the multilateral trading system, the Uruguay Round of the General Agreement on Tariffs and Trade (signed off in 1994) moved to a single-tier system of rights and obligations, under which developing countries have to fully implement all rules and commitments. This was a quid pro quo for access to developed-country markets in agriculture, textiles, and clothing—sectors that had previously been highly protected. This has constrained the possibilities for autonomous development in the peripheral countries, reducing the policy choices open to them and denying them some of the most important instruments that had been used by countries of the current capitalist "core" in their own industrialization.

For example, the Agreement on Trade-Related Investment Measures (TRIMS) does not allow practices like local content specifications, designed to increase linkages between foreign investors and local manufacturers. The Agreement on Trade-Related Intellectual Property Rights (TRIPS) not only allows for the concentration and privatization of knowledge as noted above, but also restricts reverse engineering and other forms of imitative innovation that have historically been used for industrialization. It has forced the extension of patent rights in many countries, allowing the patenting of life forms. Under this new property regime, a large and powerful multinational company can, for example, sue a poor small farmer in a developing country for setting aside part of the harvest as seed for the coming year, on the grounds that this violates the company's patent rights. The Agreement on Subsidies and Countervailing Measures (SCM) prohibits subsidies that depend upon the use of domestic over imported goods, or that are conditional on export performance. Ongoing negotiations in the World Trade Organisation on Non Agricultural Market Access (NAMA) are currently proceeding on the basis of much deeper tariff cuts in developing countries, which will further deprive them of a crucial policy instrument to support their infant industries.

The Agreement on Agriculture (1995) contained fine print that effectively allowed the developed countries to continue the massive subsidization and protection of their own agriculture sectors (and agri-business interests), but prevented developing countries from doing even a small fraction of this. Most developing countries are allowed only subsidies of 10% or less, while most developed countries only have to reduce certain agricultural subsidies, while maintaining and even increasing some others. Developing countries (like India) that attempt to provide some protection to farmers and to ensure food security are coming up against constraints imposed by the agreement. All subsidies, even in developing countries, are measured in relation to 1986-88 prices, not current prices, so even low subsidies run afoul of the 10% limit. Instead of recognising the ridiculous nature of this clause, the developed countries are resisting any change and have only agreed to provide a "Peace Clause"—applying only to certain countries and only for a limited period, preventing any case being brought to the dispute settlement panel of the WTO until the matter is finally resolved.

Regional and Bilateral Trade Agreements

However, if the WTO has constricted the "policy space" for developing countries, the many regional trade agreements of the past two decades have been even worse. There are nearly 400 such agreements in force, and they have become more comprehensive over the past twenty years. Most of these agreements, especially North-South agreements, tend to be "WTO-plus" (augmenting provisions already covered by the multilateral trading regime) or "WTO-extra" (containing provisions that go beyond current WTO rules). They often require reductions of actually applied tariffs, rather than of "bound" maximum tariff rates: Countries are forced to reduce tariffs from whatever level they happen to be at the moment, even if this is already below the upper limit. They demand more deregulation of trade in services. They require more stringent enforcement of intellectual property rights and reduce exemptions. For example, they allow compulsory licensing of medicines for generic (lower-cost) production only in emergencies. They also prohibit parallel imports (purchases of needed medicines from countries with cheaper production because they have used compulsory licensing). These agreements extend intellectual property rights to areas like life forms, extend exclusive rights to test data, and make intellectual property rights provisions more detailed and prescriptive. They forbid technology-transfer and knowledge-transfer requirements, as well as conditions on the nationality of senior personnel, as conditions for access to a country's markets. They also enter into a range of areas that the WTO still leaves open to individual countries' policy choices, such as antitrust policy, rules on investment and capital movement, government procurement, environmental standards, and even labor mobility. Further, unlike the WTO, most regional trade agreements do not provide exceptions to countries in cases of serious balance-of-payments problems or other external financial difficulties.

In addition, there are more than 4,000 bilateral investment treaties (BITs) in force in the world. These are all about protecting and promoting private investment of all types, and effectively privileging the rights of investors over the rights of citizens in the host country. There is typically a very broad, asset-based definition of investment that includes foreign direct investment (FDI), some types of investment in stocks, purchases of real estate, and even intellectual property rights. There is also a very strong and expansive view on what constitutes "expropriation" of assets for which investors can demand compensation. It is not only outright nationalization of assets that can be interpreted as expropriation, but also all sorts of government regulation (even for environmental or labor protection) as well as taxes. So for example, in Mexico, companies that have polluted municipal water supplies—and therefore been ordered to stop production until they can prevent such pollution—have successfully claimed damages for the associated losses. Other companies have won cases under BITs when governments have imposed higher taxes on their profits.

Both bilateral and, increasingly, regional agreements are subject to dispute settlement mechanisms, both between states and between an investor and a state, that are highly arbitrary, opaque to public scrutiny, and generally pro-investor in their judgments. Since they are legally based on "equal" treatment of legal persons with no primacy for human rights, they have become known for their pro-investor bias. This is partly due to the incentive structure for arbitrators, since there is a lucrative "revolving door" for legal experts between serving as arbitrators and as legal advisors for corporations. And it is partly because the system is designed to provide additional guarantees to investors, rather than making them respect host countries' laws and regulations.

Similarly, the rules governing international finance and debt work in ways that reinforce the unequal global power relations between large capital and people across the world. Nowhere is this more evident than in the legal structures governing sovereign (national government) debt. The lack of any coherent system to deal with debt default and to enable the restructuring of sovereign debt has led to situations in which countries and their populations are bled dry over years and even decades. "Austerity" measures that reduce public spending on social essentials are forced upon unwilling societies. Developing countries have known this for some time, but some developed countries (such as crisis-ridden economies of the European periphery, like Greece and Spain) are now experiencing the same.

Countries that somehow manage to restructure debt or that unilaterally decide to renege on some patently unfair debt taken on in the past are punished. Under the systems governing international debt, entire national populations lack even the minimum conditions of debt workout that are routinely accorded to individual and corporate debtors within national legal systems. Here, too, legal proceedings tend to be biased towards investors and show little recognition of the minimum rights of the citizenry in affected countries. (Take, for example, the travails that the government of Argentina currently faces in U.S. courts, in lawsuits brought by financial "vulture funds.") This is another way in which contemporary imperialism is expressed.

NOTE: Parts of this article appeared in "The Creation of the New Imperialism: The Institutional Architecture," Monthly Review, July 2015.